Chapter 237 The reverse logic of raising interest rates

Raising interest rates is one of the many means of resisting currency attacks, because for the market, investment interest rates and government bonds can be regarded as the two investment methods with the least risk. near.

  Why can interest rate hikes resist currency attacks? This involves the risk appetite of capital. According to the degree of investment risk preference, capital can be divided into risk preference type, risk avoidance type and risk neutral type. The capital mainly invested in the interest rate and treasury bond market is risk-averse, and it is also the largest group of international hot money. They travel in countries where currencies are freely convertible, and use the interest rate difference between different countries to earn money. profit.

  Most multinational commercial banks have similar arbitrage methods. For example, if the interest rate in the United States is 5%, while the interest rate in Japan is 2%, then the yen capital can be converted into US dollars for lending, thus earning a 3% interest rate difference. As long as there is no risk in the process of lending, then the interest rate difference is a situation where you can make money without losing money.

  Naturally, the exchange rate risk must also be taken into account in doing so, because once the yen appreciates against the U.S. dollar by more than 3% during the process, the transaction will suffer a loss. Of course, in terms of lending, you can lock the exchange rate level by making a forward exchange rate contract, which can minimize the exchange rate risk.

But the current situation in Thailand obviously cannot do this. Although they have raised the interest rate to 11%, fully double the interest rate in the United States, but because the forward foreign exchange level continues to look down on the Thai baht, so even if No matter how high the interest rate is, it will not be able to attract the inflow of dollar capital.

   Moreover, the interest rate level is mainly aimed at the liquidity of the domestic market. It is generally inconvenient for the central bank to change this data frequently. Unless it encounters inflation, economic development will encounter great trouble. The interest rate hike some time ago has dealt a heavy blow to Thailand's precarious financial industry. Now if the interest rate is raised again, it may be even worse for the entire Thai financial industry.

  When Malaga babbled on a lot of terminology, Prime Minister Chavalit finally understood that Malaka was tactfully refusing to raise interest rates. Compared with political pressure from Southeast Asian countries, Chavalit still pays more attention to the domestic economic situation. After all, his votes come from the Thai people.

   "Since this is the case, is there no other way?" Chavali asked unwillingly.

  If Chavali is in front of Malaka at this time, he will find that the governor of the Central Bank is pale and trembling, and it is difficult to stand up. After a long time, Malaga said bitterly: "I'm afraid there is really no other way, Mr. Prime Minister."

   "Let me think about it again!" Chavali's voice did not fluctuate at all, and the phone was hung up immediately.

  Chavalit’s words didn’t put too much pressure on Malaka, and naturally they didn’t frighten Malaka to the point where it was difficult for him to even stand. The reason why he was terrified to this extent was because when he was talking to Chavali, a thought suddenly flashed in his mind.

  Forex swap transactions.

  When he explained foreign exchange hedging to Chavalit in detail, he was not aware of foreign exchange swaps. But when he thought back, he suddenly realized the horror of this transaction.

  Foreign exchange transaction is the swap of two currencies, but when it comes to cross-border trade, foreign exchange risks need to be considered. Foreign exchange swap transactions are generated for this demand, which is understandable.

   But the problem is that smart capital is not limited to the physical swap of two currencies, but has added credit. That is to release funds in the form of foreign exchange swaps, causing a false prosperity of a large influx of funds, and then reclaiming loans when the bubble bursts. This will consume a large amount of foreign exchange reserves in the short term, and threaten the entire exchange rate system.

In short, it is to conduct foreign exchange swap transactions with foreign financial institutions through false trade, and to avoid the supervision of the Bank of Thailand to obtain huge funds. in the market.

  Because Thailand's exchange rate is pegged to the exchange rate system, the exchange rate between the Thai baht and the US dollar changes very little, so there is no need for too much foreign exchange swap hedging. However, the main reason why Thai consortiums are so keen on swap transactions in the foreign exchange market lies in the lower financing costs of foreign funds.

  The whole process is: borrow USD funds from foreign financial institutions through foreign exchange swap transactions, then convert them into Thai baht, and invest them in industries with high yields such as the stock market and real estate. In this way, funds can be integrated at a lower cost, and it can also avoid Thailand's regulation on capital inflows.

  If these industries continue to prosper, the swap transactions will become bigger and bigger, and once there is a slowdown in earnings or sharp fluctuations in the exchange rate, foreign financial institutions will demand to call back loans and end swap transactions.

  Because the essence of the whole transaction is a process of lending, rather than pure hedging. It is therefore necessary for the foreign financial institution to close the transaction early, and they must have a similar right in the contract.

  If this is the case, then raising interest rates will not only fail to attract the inflow of foreign capital, but will also accelerate the flight of foreign capital. This is exactly the opposite of the logic of the operation of the financial market that Malaga knows. Because once Thailand raises interest rates again, the income from investing in the stock market and real estate market will be further compressed, which will make foreign financial institutions that lend loans more serious about credit panic, and then withdraw funds more quickly.

"My God, if all this is a pre-set situation, I am afraid that the currency attack launched by the hedge fund will just pull the curtain of the whole conspiracy." Malaga couldn't hide the shock in his heart, and couldn't help gasping, "No wonder So much foreign exchange reserves have been lost in this month, it turns out that all of this was designed.”

   But another problem arises, that is, what to do if the debtor in Thailand cannot repay the debt, which involves the shareholding ratio and Thailand's foreign exchange receipts. If foreign capital participates in Thailand's real estate market through lending, it is bound to understand the financial status of the partner. As we all know, Thailand is a country that relies on exports to drive economic growth. Naturally, there is no need to worry about US dollar reserves when foreign trade increases. However, when export growth slows down, foreign financial institutions will consider stopping or even withdrawing US dollar loans. .

Unlike the foreign capital that enters the Thai market through the capital account, these funds are completely unregulated, which is commonly referred to as "hot money". capital to attack.

   This is the underlying reason why in May, in just one month, BOT, which had 32 billion US dollars of foreign exchange reserves, was almost exhausted, but it was not shown on the capital account.

   And now the upsurge of shorting the Thai baht again is obviously the last move prepared in advance by international capital. Their first move was to stir up public opinion that the Thai baht was overvalued to attract the attention of capital; the second move was a large-scale attack in May, making the long-standing rumors in the market a reality; the third move was to Happening now is the complete downfall of the baht.

   Throughout the short-selling process, the BOT never saw through the overall conspiracy. Instead, it took care of the head and feet, and did not realize that this was a huge conspiracy that had been arranged and carefully planned for a long time.

  This conspiracy obviously targets not just Thailand, but the entire Southeast Asia region, even East Asia including Japan. Because once the Thai baht depreciates, the currencies in this region will have a chain effect like dominoes, and eventually evolve into a situation of mutual vicious depreciation.

   Malaga can no longer imagine it, because the entire region has not united into a formal organization, and the two sides can only choose rescue based on the closeness of the relationship, rather than unite as a whole to fight the crisis. Moreover, this is far beyond what he can consider now.

   "This shouldn't be a game designed by a consortium or a hedge fund. The forces behind it must be..." Malaga couldn't imagine it anymore, although the object of his suspicion was ready to come out.

   But why? Malaga immediately thought of the motive, which made him a little confused about his own judgment. These Southeast Asian countries are all allies of the United States, and even have their military bases in certain areas, and according to the economic conditions of these countries In terms of strength, even if they work hard to develop for a hundred years, they cannot be the opponent of the United States, so the goal of this huge conspiracy is obviously not against them.

"Japan? It's unlikely. Japan has been subdued in the past few years." Malaka frowned and thought for a while, and finally denied the possibility that the target was Japan. "Then, in this area can Huaxia is the only one who has broken arms with the United States!"

"However, China's capital account has not been opened, and it is seeking to enter the WTO (World Trade Organization). Obviously, it is impossible to challenge the United States at this time. However, the return of Hong Kong heralds the rise of China. It seems that the diplomatic center of the United States will go to East Asia. Moved." Malaga has fully figured it out, this attack is not only a search for Southeast Asia, but also a warning to the rising China.

   "Why do I think so much?" Malaga shook his head and smiled wryly at himself. "I just heard what Mr. Prime Minister said, and it seems that he is about to abandon the exchange rate system. I'm afraid he is looking for a scapegoat now?"

  He was right in thinking. At this time, the Prime Minister Chavalit was considering throwing a scapegoat to the outside world. Obviously, such a situation where domestic economic growth is unfavorable and the value of the Thai baht cannot be guaranteed is not in line with his promise to the public before he ran for election. Naturally, in this case, the Minister of Finance and the Governor of the Central Bank will both face the fate of being abandoned, and the Thai baht will not depreciate for a while, so Malaka cannot be thrown out. will become a victim.

  (end of this chapter)